When you are ready to take a loan, the lender or the bank will check your credit report to find out how creditworthy you are and how you have managed credit in the past. If you have a very good history of managing funds properly in the past, you will have a good credit score but if you have a bad record, it will adversely affect your credit record. You will be more likely given a loan with favorable terms like good interest rate when you have a good credit rating compared to when you have a bad one.
Building a credit record requires dedication and commitment and takes some time. Below are some tips on how to build your credit profile.
- Open a credit card account– If you already have some credit history, you should get a card with low spending limit, as it may be easier for you to qualify for if you have a bad credit history. Make small charges on it which you can easily clear off and pay the full balance in a month. This will help you build a credit report profile that says you are reliable.
- Get a secured credit card. If you already have a small credit history, or bad credit rating, it might be difficult for you to get regular credit card, so you have to opt for a secured credit card instead. These type of cards are usually tied to one’s savings account and the limit on the card is usually a percentage if the amount in the account or the amount in it. The good thing is not all lender’s report secured card transactions to credit card companies and the lender might be willing to convert the account into a traditional credit card when a certain period of time elapses.
- Open a joint account- if you are having issues with your credit card, you can become an authorized user on someone else’s account or you can open a joint account with another person who has a good credit history. Some parents help their children by adding them to their existing credit card. if it is a joint account, you and the other account holder are responsible for repaying the charges on the credit card. If both of you fail to repay, both of you will feel the negative impact together.
- Request for an increase in your credit limit – Paying your debts and decreasing your creditutilization rate will keep your credit in good standing. You can ask for an increase in credit limit from your card provider. Credit utilization refers to the comparison between the total amount of credit available to an individual versus the total amount of money you are using and it is important you take this into consideration in your credit score. Increasing your available credit will decrease your credit utilization ratio and have a positive impact on your score provided you do not charge up to your new limit. The lower your utilisation rate, the higher your credit score.
- Clear Your Bills on Time
When you apply for a loan, lenders request for your credit score. They need this because they need to confirm how reliable you are when it comes to paying your bills so they can predict what your payment performance would be in the future. You can influence your rating positively by paying your bills on time. You don’t need to focus on your loans alone, you also need to clear your utilities, student loans etc on time.
- Do not apply for excessive new credit , resulting in multiple inquiries.
When you open a new credit card, your overall credit limit increases and applying for credit creates a hard inquiry on your credit record, and too many hard inquiries will negatively impact in your credit rating, although this will pass away after some years.
- Do not close your Unused Credit Cards
Ensure you keep your unused credit cards open provided they do not coat you extra money. This is a good way because the closing of account can increase utilization ratio.